Enterprise introduction
The main products include casing, tubing, oil pump, sucker rod and other petroleum machinery parts.
Report summary
The growth of oil demand will continue to move the market for equipment. However, Nymex oil futures have fallen from a high of more than US $110 / barrel in April to a recent level of more than US $90 / bb.However, as the idle production capacity of OPEC is relatively low, and the supply market is weak, we believe that crude oil futures will have solid support at the level of US $85 to US $90 per barrel. At the same time, the desire of oil production enterprises to sell oil fields has not abated in recent months. According to statistics from Baker Hughes, an international oil field service company, the number of active exploration wells in the United States has maintained an increase in recent months. To a certain extent, this reflects that when oil production enterprises spend more than US $80-90, it is enough to encourage oil production enterprises to actively produce. The demand situation of oil equipment products in Jilin Province is satisfactory, and the collective management bureau said that the production plans for the period from this year to September have been scheduled. We believe that sufficient demand will make it possible to achieve the target of producing 530,000 tons of oil and casing this year, which will increase the output of 35 tons by about 50% in 2010.
The decline in earnings in the first quarter is expected to be only a "short-term" pain. In the first quarter of 2011, Shanxi Province registered an annual growth rate of 20.4%. However, due to the decline in gross profit margin from 13.8% in the first quarter of 2010 to 8.7% in the first quarter of this year, market profits fell by 33.1% to 22 million people per year. The initial cost of the new production equipment-"180mm Petroleum dedicated Pipe renovation Project" is the main reason for the decline in profits in the first quarter of Gao Nai Mo Co., Ltd., according to the management of Shannon Moji, if the impact of new equipment is excluded, collective profits can record an increase of about 28% compared with the same period last year. As the production of the "180mm Project" is maturing, manufacturing costs have fallen from high levels and are expected to return to normal levels by the third quarter of this year. At the same time, Yamashiro Moji has raised its product label, reflecting the rising strength of raw materials, and the average price of Chinese products supplied to Petrochina Company Limited in early May has risen by about 7%. Therefore, we expect only a short-term pain in the decline in profits in the first quarter of this year, and will improve in the second quarter and increase in the second half of this year.
Valuation
At present, the valuations of Tenaris and Vallourec, both of which are about 17 times 2011 earnings, are significantly higher than their average over the past five years (about 12-13 times), reflecting the positive outlook for the oil and casing industry in the market. It is expected that when the international oil price is maintained at or above the level of US $85-90 per barrel, the market will have a strong demand for oil and gas equipment. On the basis of earnings per share of 0.86 cents per share, the current price-to-earnings ratio of Mercedes-Benz in 2011 is 7.1 times, well below its five-year median of 10 times. We believe that there will be some improvement in the second quarter and will pick up growth in the second half of the year, and the market will reassess its value, so we reiterate that it is at the top level of HK $10.3, which is equivalent to a price-to-earnings ratio of 10 times 2011.
